Still unclear exactly how QE eases conditions: Fed's Dudley

PHILADELPHIA Sat Jan 4, 2014 12:17pm EST

President of the Federal Reserve Bank of New York William Dudley attends a forum organized by Mexico's Central Bank in Mexico City October 15, 2013. REUTERS/Tomas Bravo

President of the Federal Reserve Bank of New York William Dudley attends a forum organized by Mexico's Central Bank in Mexico City October 15, 2013.

Credit: Reuters/Tomas Bravo

PHILADELPHIA (Reuters) - Extensive research into massive asset-purchase programs has not yet clarified whether such policies ease financial conditions primarily as a signal to investors or more directly through private portfolios, an influential U.S. central banker said on Saturday.

The Federal Reserve is currently buying $75 billion a month in Treasuries and mortgage bonds in its third round of quantitative easing, or QE3, which is meant to ease longer-term borrowing costs in the economy.

Yet "we still don't have well-developed macro-models that incorporate a realistic financial sector,' William Dudley, president of the New York Fed, told an economics conference.

"We don't understand fully how large-scale asset purchase programs work to ease financial market conditions, there's still a lot of debate ..." he said. "Is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?"

(Reporting by Jonathan Spicer and Jason Lange; Editing by James Dalgleish)

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Comments (1)
nose2066 wrote:
Well at least there’s one person at the Federal Reserve who admits that they are carrying on a three trillion dollar experiment.

Unfortunately even he muddies the water by talking about “easing financial conditions” – which is an undefined black box.

We do know (all too well) is that the economy is not responding to all that stimulus money.

Jan 05, 2014 1:28pm EST  --  Report as abuse
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